Dodge Dart: Chrysler's biggest bet yetMay 1, 2012: 5:00 AM ET
The smallest and, in some ways, most challenged American auto maker has made great strides in turning itself around. Now, its sprightly little Dodge Dart is the company's biggest test yet.
By Doron Levin, contributor
FORTUNE -- A good estimate for the value of Chrysler, the smallest and in some ways most distressed of the Detroit Three, is the sticker price the U.S. Treasury slapped on the window three years ago: $0.
Well, not quite $0. Italy's Fiat Auto, which took over running Chrysler, did contribute its technology and intellectual property to the merger. One key element Fiat brought to the deal was its Alfa Romeo architecture used for the 2013 Dodge Dart, Chrysler's new compact sedan. The Dart, which goes on sale in the U.S. this summer, may be the biggest test for the rebounding company yet.
To be sure, Chrysler has come a long way since it took $11.2 billion in federal bailout funds in 2009. The company just reported its best quarter in more than 13 years, earning $473 million, more than quadruple what it took in in the year-earlier period. In fact, executives said that it was the biggest quarterly profit made since 1998. Better yet, the auto maker is well on its way to making its full-year profit target of $1.5 billion.
Chrysler boss Sergio Marchionne has orchestrated a spectacular first act largely through clever cover-up, retrofitting existing models with plush interiors and making surgeon-like nips and tucks to formerly dowdy sheet metal. That helped goose an 80% increase in sales outside of North America during the last quarter and swell domestic market share to 11.2%, up from 9.4% a year earlier. But the Dart is Marchionne's biggest new undertaking yet.
The sprightly little Dart has cost a lot to bring to market. The architecture used in Fiat's Alfa Romeo Giulietta, on which it is based, cost at least a couple hundred million dollars to develop. Chrysler spent a few more hundred million to stretch the mechanical underpinnings to accommodate the corporal largesse of American drivers and to develop the Dart's design, inside and out. The same architecture will be used in China for a Dart-like sedan called the Fiat Viaggio. As much as it has cost, the collaboration is saving bundles of capital.
The question now is whether the new model will be the hit the Chrysler Fiat alliance needs in the compact segment in the U.S. The Dart "is the first true indication of what these companies can develop together, a bellwether. So far the reactions I've heard are very positive," says Aaron Bragman, a senior analyst for IHS in Northville, Michigan. "The execution has to be flawless. There can't be problems or glitches in the launch, but there's less risk of this than ever before."
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The Dart replaces the discontinued and unlamented Dodge Caliber. The Caliber was a car aimed at younger, budget-minded buyers looking for a bit of attitude. The Dart is a name last used by Dodge in 1976. The new model is designed to compete primarily against Ford's (F) Focus and Chevrolet's (GM) Cruze. Its price will start at about $16,000 and rise to $22,500 for a high-performance R/T version, which will be available later this summer.
Chrysler intends to distinguish the Dart by taking a page from the likes of BMW's posh Mini brand. It plans to offer customers a vast choice of options and up to 100,000 equipment, colors and feature combinations, instead of a few standard packages, the norm with most competitive vehicles. Buyers who choose to customize their vehicles could wait four to six weeks until the vehicle is built and shipped from Chrysler's Belvidere, Illinois assembly plant. "Automakers generally have limited choice in order to streamline production and build more vehicles faster," notes Bragman. "Dodge isn't worried about that, it wants to stand out."
The company is bullish on the Dart's prospects. "Everyone in the segment is fuel-efficient, we've got to be competitive in many ways," says Richard Cox, Dodge's brand director. "We've haven't been competitive enough in the past, we think we're giving consumers another choice with the Dart." He adds that logistics of providing mass customization to consumers "is something Fiat already was doing in Europe."
Chrysler's newest Dodge should benefit from an improving U.S. automotive market. April sales in the U.S. are expected to come in at the highest seasonally adjusted annual rate in five years. What's more, analysts expect the market to continue making progress. Year-to-date sales have beat car-buying site Edmunds.com's estimates every month so far. And, the site's analysts expect Chrysler sales to be up 33.8%, year over year.
There are challenges, not the least of which are a crop of very competitive small cars from nearly every major automaker. Even Chrysler's financials highlight the automaker's quandary: it is on pace to earn an impressive sum but not one sufficient for a global alliance to develop new vehicles and keep up with costly technology. Chrysler and Fiat need larger scale, most analysts agree, which it could get with another partner. Plenty of Dart sales will further boost Chrysler's balance sheet. They could also show that Chrysler Fiat can be a sustainable enterprise, one with which other automakers – also too small to stand alone – might want to join forces.